Mumbai millstone

The decision of the Bombay High Court that the development of defunct mill land violates Supreme Court plans is unfortunate. The auction of five nationalised textile mills by NTC to land developers has also been ruled as illegal. Redevelopment projects worth at least Rs 20,000 crore had started after the land 8212; which had been lying defunct for almost a decade 8212; during which legal battles had gone on, had been sold.

The Bombay High Court ruling may conform to the letter of the law in that the development goes against a Supreme Court-sanctioned plan and that environmental clearances were not obtained but it does little to address the land-shortage problems faced by Mumbai or help pay workers and creditors their due. Most importantly, by not allowing mill owners to sell their land, the ruling puts a question mark on the right of owners to put their land to the best and most profitable use 8212; something that is fundamental to an optimal allocation of resources. If an enterprise fails in a business it attempts, it should be able to close it down, sell its assets, pay its creditors, pay the workers off and make another investment. Trapping factors of production such as land, labour and capital, so that they remain unused for years, pushes the economy below its full potential. In this case, the use of land for either housing projects or malls which generate incomes, create employment and increase commercial activities was optimal. This is what has been valued the highest by the market which allocates resources according to the use that fetches the best price.

If the government is required to make parks, which it certainly should, it must be remembered that public greens are a public good. Therefore the tax payer8217;s money should be used to purchase the land that could then be used for parks. Similarly, if the government has to make low-cost housing, it should buy land at the market price, construct the houses and give a transparent on-budget subsidy while selling them. Imposing these costs on owners of private land is wrong.